Elbar Invs., Inc. v. Prins (In re Okedokun)

• Decision Date: 30 July 2020
• Docket Number: No. 19-20358,19-20358
• Citation: 968 F.3d 378
• Parties: In the MATTER OF: Oluyemisi Omokafe OKEDOKUN, Debtor Elbar Investments, Incorporated, Appellant, v. Todd Prins ; Transworld Leasing Corporation; Industry Drive Partners, Limited; United Sentry Mortgage Investment Fund #1, L.L.C., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

968 F.3d 378

In the MATTER OF: Oluyemisi Omokafe OKEDOKUN, DebtorElbar Investments, Incorporated, Appellant,

v.Todd Prins ; Transworld Leasing Corporation; Industry Drive Partners, Limited; United Sentry Mortgage Investment Fund #1, L.L.C., Appellees.

No. 19-20358

United States Court of Appeals, Fifth Circuit.

FILED July 30, 2020

Richard Anthony Battaglia, Houston, TX, for Appellant

Todd Alan Prins, Prins Law Firm, San Antonio, TX, for Appellee Todd Prins

Michael L. Weems, Hughes, Watters & Askanase, L.L.P., Houston, TX, for Appellee Transworld Leasing Corporation

Leslie Sara Hyman, Esq., Randall Alan Pulman, Pulman, Cappuccio, Pullen, Benson & Jones, L.L.P., San Antonio, TX, for Appellee Industry Drive Partners, Limited

Benette L. Zivley, Pflugerville, TX, for Appellee United Sentry Mortgage Investment Fund #1, L.L.C.

Before ELROD, SOUTHWICK, and HAYNES, Circuit Judges..

JENNIFER WALKER ELROD, Circuit Judge:

This appeal arises from the criminal actions of former attorney Todd Prins. Two of Prins's former clients—TransWorld Leasing Corp. and Industry Drive Partners—are co-appellees. Appellee United Sentry Mortgage Investment Fund, a private lender, retained Prins to execute and post a notice of sale related to a piece of real property. Appellant Elbar Investments, Inc. is a foreclosure investment firm. Elbar, looking to make another investment, wired $2.4 million to Prins to purchase the real property. Prins stole the funds tendered by Elbar and used a portion of those funds to pay TransWorld and Industry—from whom he was also stealing. Because of an automatic stay, title never transferred to Elbar. Now that much of the $2.4 million has been spent, the dispute is who will recover what is left.

At first glance, this case seems simple: United hired Prins to conduct a foreclosure sale; Elbar wired funds to Prins; Prins stole those funds and used them to reimburse other clients. But many of the key issues in this case turn on another part of the story: Elbar's repeated decisions to violate the bankruptcy code. Because Elbar fails to demonstrate reversible error as to the merits of its claims, we AFFIRM in part. We REMAND for the further consideration of prejudgment interest.

I.

This case involves an investor, Elbar, that wired money to an attorney, after the owner of a foreclosed property had declared bankruptcy. The attorney, who is currently serving time for his crimes, spent some of that money on personal luxuries, and transferred some of it to clients (whom he had also defrauded). That is the short story. But the details take some unpacking.

A.

United Sentry Mortgage Investment Fund is a private lender. United provided financing to Triple Gate Investments, an entity owned by Oluyemisi Omokafe Okedokun, the debtor, to purchase the real property located in Houston, Texas. Upon default by the debtor, United retained attorney Todd Prins to post the property for notice of sale, scheduled to occur on October 4, 2016. Elbar Investments, Inc., a privately held foreclosure investment firm, attended the October 4, 2016 sale.

On the morning of the foreclosure sale, the debtor filed a Chapter 7 bankruptcy petition and faxed a notice-of-bankruptcy filing to Prins. Notwithstanding the bankruptcy notice, the foreclosure sale proceeded. With a bid of $2.4 million, Elbar won the auction. To satisfy the purchase price, Elbar tendered eleven cashier's checks, totaling the $2.4 million purchase price, to Victoria Shum, Prins's associate. Prins claimed, however, that his bank would not accept the cashier's checks and therefore the purchase price would need to be paid with either a single check or a wire transfer.

The next morning, October 5, 2016, Prins received both the recorded deed, evidencing a transfer of the property from Triple Gate to the debtor, and records from the Harris County Appraisal District, evidencing a homestead claim on the property. Victoria Shum relayed this information to Elbar which it acknowledged. Elbar, knowing that the automatic stay would preclude transfer of title, still wired $2.4 million to Prins's IOLTA account, in its second attempt to satisfy the purchase price. Because of the automatic stay triggered by the bankruptcy proceeding, Prins lacked the legal ability to transfer title to Elbar.

Prins subsequently transferred $2 million from his IOLTA account into his Prins Law Firm Wells Fargo account. Between October 19, 2016 and December 12, 2016, Prins spent these funds liberally. With the funds now in his Wells Fargo Operating account, Prins closed his law firm, paid his personal lawyers and taxes, and traveled across Europe. Prins also used a portion of the funds to pay clients from whom he had previously stolen. Two of these clients were TransWorld Leasing Corp. and Industry Drive Partners.

TransWorld and Industry had an unfortunate relationship with Prins. Transworld's started working with Prins on February 4, 2008, when it transferred $230,853.66 to Prins to resolve a tax dispute with Bexar County. Prins did not use these funds to resolve the tax dispute. Unbeknownst to TransWorld, as of December 27, 2017, the tax debt of $230,000 had risen to over $445,000. Prins's streak of fraudulent conduct continued in 2016 after TransWorld became concerned that its tax dispute from 2008 had not been resolved. Prins forged a letter from the county tax assessor's counsel stating that TransWorld owed $169,807.29 in unpaid taxes. Prins then convinced TransWorld to deposit $169,807.29 into his IOLTA account. On October 21, 2016, after "resolving the tax issue" for $5,000, Prins wrote a check from the Wells Fargo Operating account to TransWorld in the amount of $164,807.29. This amount represents the $169,807.29 deposited by TransWorld, less the $5,000 "tax settlement." Elbar claims that it is entitled to the $164,807.29 Prins transferred to TransWorld because Prins took those funds out of its $2.4 million wire transfer.

We turn next to Industry's relationship with Prins. A year before the foreclosure sale at issue, Jim Pfirrmann, a co-manager of Industry's general partner, G5 Property Holdings, LLC, transferred $300,000 out of Industry's account and into Prins's for safekeeping. On November 4, 2016, upon learning that Prins had filed for bankruptcy and was being sued by two of his former clients, Cindy Gabriel, a general partner of Industry, asked Pfirrmann to request the $300,000 he had placed in safekeeping to be returned. Prins returned $300,000 later that day. Elbar claims that it is entitled to the $300,000 Prins transferred to Industry because the source of this transfer was also its own $2.4 million wire transfer.

On November 8, 2016, Elbar's counsel requested that Prins return the $2.4 million Elbar had wired to Prins. However, as we now know, Prins had already transferred a significant portion of these funds to his Wells Fargo Operating account. As of October 17, 2016 only $13,414.57 remained.

Prins has since entered into a plea agreement with the United States Attorney for the Western District of Texas. He pled guilty to wire fraud and on May 15, 2018 was sentenced to seventy-two months imprisonment, three years of supervised release, and was ordered to pay $2,975,264 in restitution. That district court granted the government's motion to set aside the preliminary order of forfeiture in lieu of restitution, effectively allowing funds to be returned to Elbar. In fact, of the $2.4 million that Elbar initially sought to recover, Elbar has received a total of $1,683,915.42: $82,373.28 from the IRS as a result of Prins's bankruptcy plus $1,601,542.14 from Prins's criminal case.

B.

This appeal arises from Elbar's litigation against United, TransWorld, and Industry in the debtor's bankruptcy proceeding. The bankruptcy court conducted a multi-day trial, took the matter under advisement, and issued a 176-page memorandum opinion detailing its judgment denying all relief requested by Elbar against United, TransWorld, and Industry. Elbar appealed to the district court, which affirmed. Elbar then timely appealed to this court.

II.

We review the district court's judgment "by applying the same standard of review to the bankruptcy court's conclusions of law and findings of fact that the district court applied." In re JFK Capital Holdings, L.L.C , 880 F.3d 747, 751 (5th Cir. 2018) (quoting Barron & Newburger, P.C. v. Tex. Skyline, Ltd. (In re Woerner) , 783 F.3d 266, 270 (5th Cir. 2015) (en banc)). Accordingly, we review questions of fact for clear error and conclusions of law de novo . Matter of Cowin , 864 F.3d 344, 349 (5th Cir. 2017). Mixed questions of law and fact are reviewed de novo . Id.

III.

When it comes to foreclosure speculation and automatic stay violations, this is not Elbar's first rodeo. See, e.g. , Elbar Invs., Inc. v. Pierce (In re Pierce) , 272 B.R. 198, 203 (Bankr. S.D. Tex. 2001), aff'd , 91 F. App'x 927 (5th Cir. 2004) ; see also In re Cueva , 200 F. App'x 334 (5th Cir. 2006) ("Once again, [Elbar's vice president] comes before this court demanding a return of money he lost in foreclosure speculation. And, once again, we must deny him."); In re Cueva , 371 F.3d 232, 237 (5th Cir. 2004) (concluding that "[t]he foreclosure sale was invalid, the stay was not modified, and therefore [Elbar's vice president] was not entitled to possession or ownership of the Property").

This time around, Elbar asked the bankruptcy court to recover $716,084.58. That amount would make Elbar whole ($2,400,000 less the $1,683,915.42 already recovered equals $716,084.58). The bankruptcy court found that Elbar was not entitled to any relief against United, TransWorld, or Industry for a number of reasons but predominantly because of Elbar's repeated and willful violations of the automatic stay. The bankruptcy court found that Elbar's multiple violations of the automatic stay were the most significant factor weighing against Elbar's claim for equitable subrogation, unjust enrichment, and money had and received. To rebut that analysis, Elbar...